The Devoncroft Digest is a semi-regular amalgamation of news items I’ve seen recently that I think might be interesting / important for readers and clients.

Due to my travel schedule it’s been two weeks since the last digest post. Here are a few of the things that have caught my eye during this time.

Earnings Season Continues

We are now in the heart of earnings season, and a large number of tech vendors, platform operators, service providers and broadcasters. For the most part these results have been generally positive, with many companies saying that they are seeing the green shoots of recovery taking hold.

Broadcast graphics and asset management provider Vizrt announced its Q2 and 1H results. Revenue for the quarter was up 17% y/y, driven by strong growth in the Americas, which was up 48% y/y.

Gross margins for the quarter were 65%, well ahead of the 58% that the company achieved during the same period a year ago. Broadcast graphics accounted for 72% of the company’s total revenues in 1H 2010. According to the company, Vizrt’s graphics business is up 33% y/y.

Q2 revenue was $6.94m, up 20% versus Q2 2009. Gross margins for the quarter were 70%, up slightly from the previous year. Q2 product revenue was $5.4m, up 18% y/y. Service revenue increased 29% y/y to $1.19m. Service revenue accounted for 22% of the quarter’s total revenue. The company posted an operating loss for the quarter of $680,000, a 52% y/y improvement; and a net loss of $710,000, 35% better than a year ago.

Broadcast infrastructure provider Miranda Technologies announced their Q2 2010 results. Revenue for the quarter was C$32.1m, up 3% from the same period a year ago and up 11% versus the previous quarter. International sales were up 11% y/y. Sales in the US were up 10% y/y

The company’s net income jumped 173% to C$3.5m as expenses were reduced during the quarter, and EBITDA rose by 125% to C$6m versus the same period in 2009. Gross margins were 60%, slightly down from Q2 2009, but up from 57.7% in the previous quarter. This is a good showing in a competitive market, which the company attributes to a higher margin mix, and increased sales of routing switchers.

DivX announced that its Q2 revenues were up 29% y/y and that its licensing business was up 23% y/y. The company, which is in the process of being acquired by Sonic (who also announced their numbers recently) posted a GAAP Loss of $2.8m, and non-GAAP NI of $760K

Revenue for the quarter was $60.3m, well ahead of the $55.6m consensus estimate of equity analysts. This represents a 38% revenue increase versus the same period a year ago, and an increase of 11% from the previous quarter. Net income for the quarter was $9m, up 150% increase versus Q2 2009 and up 12.5% versus the previous quarter.

Significantly, the company’s revenue from the delivery of HD advertising content increased 99% to $23.9 million versus the same period of 2009.

Company Chairman & CEO Scott Ginsburg said “The Company continues to execute on its strategic business plan… revenue, margins, earnings and net debt show marked improvements during the second quarter.”

Harris Corporation reported its Q4 and full year 2010 results. While the company as a whole did well, the broadcast communications division continued to struggle.

For the full year, revenues from the broadcast communications division were down 17% versus the previous year. For Q4, the company’s broadcast revenues were down just 1.9% y/y, although orders were down 12.5% versus the same period last year.

In the 4th quarter of FY 2010, Harris posted an operating loss of $21m. According to the company, this “includes $7 million in charges related to cost-reduction actions and $6 million in inventory write-downs associated with weaker demand.”

Harris CEO Howard Lance said the following about the revenue of the broadcast division: “we continue to expect revenue in a range of $490 million to $510 million with break-even operating results. We expect to see continued operating losses in the first half of the year with profitability improving in the second half of the fiscal year.”

3D specialist RealD announced its first results as a public company, and reported huge y/y increases in revenue and EBITDA, which were up 152% and 387% respectively. The company announced that it has now deployed 7500 screens, significantly more than Technicolor, who announced recently that they have now deployed 250 screens,

Digital media service provider Ascent Mediareported increased losses and lower revenue for the second quarter ended of 2010. The company attributes the lower results to market volatility and lower capital spending by customers.

Revenue for the quarter dropped 13% to $99.5m, while revenue for the first six months was off 11% to $204m. The company said that the decline in second quarter and year-to-date revenue was driven primarily by a reduction in revenue from the Content Services segment.

Q2 losses from continuing operations before income taxes were $17.5m, compared to a loss of $12.4 million in the prior year period. Year-to-date, the loss from continuing operations before income taxes was $28.6 million compared to a loss of $23.2 million for the six months ended June 30, 2009.

“Ascent’s year-to-date operating results have not met our expectations as uncertainty about the timing and pace of the economic recovery has led to ongoing volatility in the media marketplace,” said William Fitzgerald, Ascent’s CEO. “A consequence of the current environment is that our customers have continued to take a cautious approach to capital spending.”

Fitzgerald was more upbeat about the rest of 2010, saying “We are beginning to see positive indications of an upturn, including first half revenue improvement in our creative services business, a strengthening pipeline of feature film and other projects, and rising industry advertising estimates for the second half of 2010.”

Scripps reported operating results for the second quarter of 2010 that showed a continuing trend of significantly improved year-over-year revenue performance in the television division – up 22 percent from last year.

Cablevision’s Q2 profits fell by 30% but its revenues were up 5.8% to $1.802 billion versus the same period a year ago, which the company says reflects solid revenue growth in Telecommunications Services and Rainbow, offset slightly by a decline at Newsday. Consolidated adjusted operating cash flow grew 9.0% to $677.6 million and consolidated operating income grew 23.0% to $416.8 million, both compared to the prior year period.

According to a Wall Street Journal article, Time Warner’s second-quarter earnings rose 8.2% on solid revenue growth, but the nation’s second-biggest cable-television provider saw the same weakness in subscriber additions in July felt by its larger cable counterpart, Comcast Corp.

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News Corp Reports Q4 and Full year Results – TV Station Operating Income up 13%

News Corp’s Q4 revenue increased by 6% and it hauled in Net Income of $875m. Significantly, the company’s TV Operating Income was up 13% versus the same period last year, driven by an improved TV station advertising market.

According to leading industry website TV News Check, TV station revenue at CBS jumped by 31%. The company also realized a 17% increase in local broadcasting revenue (TV stations plus CBS Radio) to $678.2 million from $579.5 million in the year-ago quarter. Sumner Redstone, the company’s executive chairman called the results “Terrific”

Sinclair Broadcast Group, one of the largest US TV station groups reported that its net broadcast Q2 revenues from continuing operations were up 19.3% versus the prior year. The company had net income of $17.3 million versus $2.8 million in the prior year period. Local net broadcast revenues, which include local time sales, retransmission revenues and other broadcast revenues, were up 16.6% in the second quarter 2010 while national net broadcast revenues, which include national time sales and other national broadcast revenues, were up 27.7% versus the second quarter 2009.

According to an article in the Wall Street Journal, Discovery Communications posted a 40% drop in its second-quarter profit, hurt in part by costs related to its recent $3 billion debt refinancing. Still, the cable-network operator showed revenue and operating-profit growth, and announced a $1 billion share repurchasing program.

Barrington Broadcasting Group announced that gross revenues for the quarter ended June 30 increased 13.6% to $32.7 million from $28.8 million for the same period a year earlier. The company said the increase was primarily due to 16.7% increase in national revenues, a 4.7% increase in local revenues, and an increase in political revenues of $900,000 to $1 million.

According to TVB, Gray Television came in ahead of analyst expectations for the second quarter. The pure-play TV group posted revenues of $75.6 million for the 36 stations, up 16 percent from a year earlier. Net income was $534,000 compared to a loss of $6.6 million a year ago. After payment of $6.4 million in dividends, net loss to common stockholders was $5.9 million, or 11 cents a share.

Blackmagic is buying Echolab for the latter’s ATEM product line, which was introduced about two years ago and has been continuously upgraded since under Echolab’s former CEO Nigel Spratling, who apparently not part of the Blackmagic deal and has now joined Ross Video in a marketing role.

This is great news for the affected Echolab employees, who were left jobless in an instant when the company shut its doors in mid-May. It’s also good news for the industry, because the ATEM switcher product line, which looks like a pretty good product, will continue to be available through Blackmagic. In fact, Blackmagic has said that it is adding to the engineering team responsible for ATEM.

It will be interesting to see how Blackmagic approaches the production switcher market, which is different than the company’s core post production market. The part of the production switcher market where Echolab is active has considerable competition. In addition to Echolab, Sony, Panasonic, JVC, For-A and Ross Video are all very active players in this space.

In addition to the competitive aspects of the deal, it seems to me that selling production switchers is a bit of a departure business-wise for Blackmagic. Production switchers are a “high-touch” product category. They are mission critical elements of the live production workflow, and as such they can require extensive demonstrations and training. The majority of Blackmagic’s products are plug-in cards or stand-alone units, which are sold primarily through third-party dealers.

At this point, I am unsure whether Blackmagic’s all-dealer sales approach is a positive or a negative for Echolab. On the plus side, the compact HD production switcher market is a large and somewhat amorphous, running the gamut from broadcasters to corporation, to churches to education – so it requires a large dealer network, which Blackmagic already has in place. On the other hand production switchers require a specialized sales approach. Every buyer wants a demonstration, which typically involves shipping equipment and people, thereby increasing the cost of each sale. Blackmagic will probably have to augment their approach somewhat in order to be successful selling production switchers.

Still if they can get the distribution right, Blackmagic may have a good chance of making their purchase of Echolab a success. Blackmagic most likely paid very little for Echolab’s assets, and since it’s buying the assets and not the company, it gets a brand new HD switcher line, but not 35 years of legacy products that need support. And Blackmagic does have experience buying distressed “traditional” vendors and changing their approach. Last year, Blackmagic acquired leading color grading vendor Da Vinci Systems, and proceeded to radically change Da Vinci’s market approach, not to mention its pricing, turning a $200,000 hardware product into a sub-$1000 product according to TVB Europe.

Arguably however, Da Vinci’s color grading products (which are used off-line in post production) were easier to port to software platforms – and they still require a very expensive hardware controller. Live production switchers are a different kettle of fish than off-line color grading systems for post production. They are the key element of any live broadcast production, and they are still a relatively expensive hardware platform that requires specialist sales and support.

Blackmagic CEO Grant Petty is obviously familiar with this. In the company’s press release that announced the deal he said: “I have been using live production switchers since I was in school where we covered local theater, sports, racing and bands. I think it’s the most exciting way to do production because it’s all live and thousands of people are watching what you are doing! Production switchers need to be powerful while also being familiar and easy to operate.”

Petty also said that “Since the acquisition, we have already dramatically expanded the engineering team working on ATEM. This fresh engineering team, which is a combination of new as well as experienced EchoLab staff, will allow us to move faster in adding new features to the ATEM product.”

Blackmagic will be displaying the ATEM on its booth at the IBC show next month.

There’s been quite a lot of activity in the transcoding space recently. Ripcode was sold to RGB networks and Elemental Technologies announced other week that it had raised $7.5m of new venture money, bringing its total to $14m

Chyron has appointed Susan Brazer as its new Chief Commercial Officer. According to the company’s press release, Brazer has a big job, taking responsibility for “commercial strategy and all product and services revenues, directing its worldwide sales network of direct sales, resellers/systems integrators and joint ventures in Europe, Asia, Latin America and the Middle East.”

But how will this shift affect how broadcast technology products are purchased, not to mention who buys them? Traditionally, these products have been purchased primarily by engineers. Will this be the same for products that are increasingly IT-based, or will there be a new set of buyers? Broadcast vendors need to know this because a new set of buyers may require a new market approach.

To find out, we asked the nearly 800 broadcast technology vendors who responded to the 2010 Big Broadcast Survey who they feel is currently the most important decision maker in the sales process, and who they feel will be most important in two to three years.

Let’s start with the most important buyers today. Respondents were asked, “When selling your products/services, which category of customer is typically the most important decision maker today?” According to responses, broadcast tech vendors see engineering staff as their most important customers, followed by operations, IT and finance personnel. Engineers are clearly seen as the most important decision makers, with operations staff a distant second.

But what about the future?

To read the full article, including four charts that break down the results, click here.

The Devoncroft Digest is a semi-regular amalgamation of news items I’ve seen recently. Here are a few of the things that have caught my eye recently.

Earnings Season Kicks Off for Broadcasters and Broadcast Tech Vendors:

Quarterly earnings are starting to roll in from both broadcasters and broadcast technology vendors. For those who are on an annual fiscal year, it’s a chance to see how the first half of the year went, and to hear management thoughts on the second half of 2010.

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Broadcast Technology Vendor Earnings:

Avidreported their numbers for the second quarter. Sales for the quarter were $162.2m, an 8% y/y increase – and the company pointed out that this was the first quarter of y/y growth for both audio and video since 1997. The company’s shares jumped on the news.

While discussing uses of cash on the company’s earnings call, Avid executives talked about the amount of cash used for the Euphonix acquisition. I was not aware of the purchase price for Euphonix, but it turns out that according to an SEC filing, Avid paid 17.6m for Euphonix, including cash of $12.6m and cash of $5m.

Speaking of Avid, Post Magazine’s Jonathan Moser recently published an interesting Q&A with Avid COO Kirk Arnold about present & future status of the company. In my opinion, both Arnold and CEO Gary Greenfield have done a good job recently with this type of interview. One of Avid’s strengths is their user community and the company is clearly working to communicate with their base. Here’s another example.

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Barco reported strong results for the company’s Q2 and first half of 2010. In the earnings press release, company President & CEO Eric Van Zele said that Q210 “Must have been our best quarter ever.” Van Zele also said that Barco is “experiencing explosive growth in demand for our digital cinema projectors and are working very hard to deal with the supply chain issues this creates.”

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Storage vendor Isilon also reported their Q2 numbers this week, and they were pretty good. The company’s Q2 revenues of $45.1m represented increases of 15% q/q and 56% y/y respectively. The company also had positive net income in the quarter. Shares jumped 18% on the news. With Isilon apparently firing on all cylinders and Omneon now part of Harmonic, the storage space is going to be interesting to watch over the next year or so.

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IPTV provider KIT Digitalpublished strong preliminary results for their Q2. In an upbeat press release, the company said that its Q2 revenues of “at least $22.7m” were up by more than 110%. The company also said that its EBITDA for the quarter would be at least $4 Million

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Broadcaster and Platform Operator Earnings:

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Broadcaster LIN TVreported 2Q revenues of 99.5m, which represents a 21% y/y increase. The company’s earnings release highlighted the fact that digital revenues were up by 44% y/y, and that political revenues more than doubled versus last year. Lin President and CEO Vincent Sadusky said: “Our results demonstrate continued, sustained improvement over 2009. Television advertising has experienced a strong recovery and our digital business, which now constitutes 15% of our total revenues, continues to grow and differentiate us as a local multimedia company.”

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According to industry website TVNewswCheck, The McGraw-Hill Companies reported that its Broadcasting Group’s revenue grew by 24% to $25.3 million in the second quarter compared to the same period last year. Increases in national, local and political advertising all contributed to the improved performance. The company as a whole reported net income for the second quarter of 2010 increased by 16.4%, or $27.0 million, to $191.1 million. Revenue in the second quarter was up 0.6% to $1.5 billion.

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Media Generalreported that the company’s broadcast revenue rose 13% in the second quarter, driven by increases in automotive and political advertising (publishing revenues fell by 7%). The company’s digital revenues rose by 8% during the quarter. The company issued upbeat guidance for its broadcast properties saying, that “Broadcast revenues in the third quarter are expected to increase more than 20 percent, mostly reflecting significant Political revenues.”

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Finally, DVD rental and streaming video provider Netflixreported its Q2 results this week. Although the company’s subscriber, revenue and net income numbers all numbers increased, it was not enough for investors who were looking for higher sales revenues. The stock tanked.

Since Echolab was suddenly put into liquidation, there has been great speculation about what would happen to the company’s IPR – particularly the Atem production switcher line up. Well if rumors are to be believed, Blackmagic Designs is set to announce that they have purchased the assets of Echolab. This is information is not confirmed, but I have spoken to several people about it.

As many know, Blackmagic made headlines earlier this year when they purchased color correction specialist Da Vinci. Coincidentally, TVB Europe just published an article about how Blackmagic took Da Vinci’s $200,000+ products into a sub-$1,000 product for the Mac and kept all the functionality. If this rumor is true, it will certainly be interesting to see what Blackmagic has in store for Echolab’s Atem product line. Watch this space.

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Vitec Multimedia (not to be confused with the Vitec Group) announced the purchase of the Focus Enhancements’ Systems Group. In the press release announcing the deal, Philippe Wetzel, CEO of VITEC Multimedia said “In combination with our recent acquisition of Optibase, this acquisition furthers our objective to provide a complete line of advanced digital video solutions to our customers around the globe. With innovation at its core, the VITEC R&D division — now with more than 100 esteemed engineers — is uniquely positioned to deliver innovative solutions for a wide range of advanced digital video applications — managing the entire video process from source to display.

Vizrt’s Chief Commercial Officer appears to have left the company. According to a press release from online gaming firm 888, David Zerah has become the managing director of Dragonfish. While at Vizrt Zerah spent seven years as EVP of worldwide sales before becoming CCO. Vizrt has not yet announced a replacement.

According to the Wall Street Journal, Imax has signed an exclusive 2-year deal with privately held Laser Light Engines. The company says that the resulting laser-power projectors will deliver brighter images for digital cinema, which will be especially beneficial for 3D.

The company’s 100+ page IPO documents are worth reading for an overview of the company’s financials as well as the state of the 3D and Digital Cinema Markets. Files 100+ Page IPO Doc. Worth Reading for Financials and #3D Industry Overview. #3DTV #Broadcast http://bit.ly/bCanRM

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Market Research Note of the Week – Quality Rankings of Broadcast Technology Vendors

This article looks at how a global sample of several thousand broadcast professionals ranked broadcast technology vendors for one of the most important metrics for any technology company: quality.

The broadcast industry prides itself on the fidelity of its sound and images, so the perception of quality is a very important metric for broadcast technology vendors. Many vendors use quality as one of the key components of their market positioning.

To determine the market’s perception of the quality of broadcast technology vendors, respondents to the 2010 Big Broadcast Survey were asked to rank broadcast technology vendor brands for “quality” on a scale of one to 10, with 10 being best in the market and one being the worst.

As with the top 30 innovation rankings published earlier, this list contains a broad mix of vendors including both audio and video companies. There are also interesting similarities and differences in terms of the types of products produced, geographic location and company.